Method of computerized monitoring of investment trading and associated system

ABSTRACT

A method of computerized monitoring of investment trading includes providing historic trading data for a specific trader, selecting a plurality of trading parameters for the specific trader and obtaining current information regarding the selected parameters, and/or providing historic trading data and applying rules to the current information and/or historic trading data to determine if behavior of interest which may involve a rules violation, a departure from the rules which is not technically a violation or a potential departure from the rules which might make desirable further investigation has occurred. The system may be employed to monitor whether market timing of mutual fund investments has occurred. A corresponding computerized system is disclosed.

CROSS-REFERENCE TO RELATED APPLICATION

The present application is a continuation in part of U.S. applicationSer. No. ______ (NOT YET ISSUED) filed Jun. 3, 2004, entitled A METHODOF COMPUTERIZED MONITORING OF INVESTMENT TRADING AND ASSOCIATED SYSTEMwhich in turn claims the benefit of U.S. Provisional Application Ser.No. 60/564,848 entitled “A METHOD OF COMPUTERIZED MONITORING OFINVESTMENT TRADING AND ASSOCIATED SYSTEM” filed Apr. 23, 2004.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates to a method and associated system forcomputerized monitoring of investment trading and more specifically itrelates to a system which as to a specific trader and a specificinvestment obtains current information regarding selected tradingparameters and compares it with historic trading data regarding the sameand applies rules to determine if a departure from the rules hasoccurred.

2. Description of the Prior Art

It has long been known to employ computerized systems to process data,store the same and provide for output and various formats as desired. Itis also been known to use the same for investment purposes. See, forexample, U.S. Pat. Nos. 5,749,077 and 5,893,079.

In recent years, the need for a system to provide more effective andtimely monitoring of investment activities has become acute. Morespecifically, numerous instances of improper conduct have resulted from“market timing” in the trading of mutual funds. For example, individualshave been known to engage in frequent purchases of mutual funds in largequantities at an early phase of an upward movement of the market andsell the same after a brief elapsed period. The frequency of suchtransactions has reached the point in many instances of being burdensometo the mutual fund. The mutual fund may at times be forced to sellinvestment securities at a less than preferred time in order toreimburse such traders for their sizable redemptions. Also, theincreased trading volume increases the mutual fund's transaction costs.This results in other investors being hurt as the market timing tradersprevent the mutual fund from doing the most efficient job of maximizingthe return for all investors. In addition, there have been instances oflate trading involving transactions which were permitted to occurillegally after the market had closed, thereby permitting theindividuals engaging in such trading to take advantage of late-breakingnews in anticipation of the response by the market upon opening the nextday.

There remains, therefore, a real and substantial need for an effectiveautomated system which can monitor on a rapid and reliable basisimproper or undesirable trading behavior.

SUMMARY OF THE INVENTION

The present invention has met the above described need. It provides amethod by which computerized monitoring of investment trading may beaccomplished in a rapid, efficient and accurate manner by providinghistoric trading data for a specific trader, selecting a plurality oftrading parameters for the specific trader and obtaining currentinformation regarding those selected parameters followed by reviewingthe current information and/or the historic trading data and thendetermining whether any of the rules employed in the method have beenviolated based upon the current information and historic trading data.In a preferred embodiment, the rules are applied to the currentinformation and the historic trading data after comparison of the twocategories of information. In the event of a departure from the rules,an appropriate alarm report is emitted.

The method and system may advantageously be employed in monitoring aspecific trader with respect to a specific investment such as a mutualfund, for example, to determine whether improper market timing hasoccurred.

Various forms of trading parameters including pattern recognition areprovided as a preferred means for monitoring such activity.

The computerized system of the present invention includes the datareceiving interface for receiving trading data and organizing itaccording to the specific trader and specific investment. A server isstructured to receive the organized trader- and investment-specific datafrom the receiving interface as well as providing an historical dataunit to deliver data to the server. The server is structured to receiverules which govern permissible conduct and to compare the rules with thecurrent information and historic data in making a determination as towhether a departure from acceptable trading conduct has occurred.

It is an object of the present invention to provide a computerizedmethod and system for efficiently, accurately and promptly monitoringselected trading parameters in order to determine if a departure fromthe rules has occurred.

It is another object of the present invention to provide such a systemwhich is structured to focus on a specific trader and within thatspecific trader's activities a specific investment and the trader'sconduct with respect to the same over a period of time.

It is another object of the present invention to permit the rules to berevised by the user so as to alter the standards.

These and other objects of the invention will be more fully understoodfrom the following description of the invention with reference to thedrawings appended hereto.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a flow diagram showing a form of method of the presentinvention.

FIG. 2 is a schematic diagram illustrating a form of computerizedapparatus of the present invention.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

As employed herein, the term “investments” shall expressly include, butnot be limited to, mutual funds, common and preferred shares of stock,whether listed on an exchange or not, high-yield corporate bonds andhigh-grade corporate bonds, municipal bonds, United States bills, notesand bonds, mortgage-related investments and short-term securities suchas commercial paper, banker's acceptances, repurchase agreements andsupporting currencies.

As employed herein, the term “trading parameters” means one or moreunits of information relevant to investment trading in one or moreinvestment products and shall expressly include, but not be limited to,transaction date, transaction time, price, product identity, traderidentity, investment identity, trading volume and investment pricehistory.

As employed herein, the term “historic trading data” means as to aspecific trader, specific details regarding the trading record of thattrader in respect of both sales and purchases including, but not limitedto, the investment, the number and value of the specific investment, asto each trade the investment date and amount, with respect to sales,profit both before and after commissions and with respect to investmentsheld, the return on investment before commissions, after commissions andannualized, patterns of trading, profitable trades, elapsed time betweentrades, number of market timing trades, trader trading history, dollarvolume of market timing trades, percentage of market timing trades toall trades, trading patterns and selected critical days.

As employed herein, reference to “sub account” or “detail account” shallmean trader account information which may include one or more of thefollowing: shareholder registration information, broker information,holding information and asset position information.

As employed herein, “omnibus account” refers to a large group ofinvestors that are reported as a single account and an “omnibus trade”is a trade against an omnibus account.

As employed herein, a “detail trade” is a trade against a detailaccount.

As employed herein, the term “rules” means a group of standards withrespect to which a plurality of events can be compared to determine ifbehavior of interest, as hereinafter defined, with respect toinvestments exists or may exist and shall expressly include, but not belimited to, standards relating to one or more of the following: (a)patterns of activity; (b) profiling; (c) pattern matching; (d) tradingvolume; (e) asset value changes; (f) investment statistics; (g)heuristics; (h) trading history; (i) legal requirements; (j) regulatoryrequirements; (k) trading parameters; (l) trader policies; (m) mutualfund policies; (n) statistical analysis; (o) neural networks; (p) expertsystems and (q) artificial intelligence techniques.

As employed herein, the term “behavior of interest” means information ordata which when compared with the rules results in the conclusion that arules violation exists or may exist or a departure from the rules existsor may exist or a potential departure from the rules which should ormight be investigated further exists. It will be appreciated that theremay be departures from rules which are not of sufficient magnitude or ofsufficient clarity to be deemed a rules “violation”. In that situation,the result may be a determination that a departure from the rules hasoccurred or that a potential departure from the rules which should ormight be further investigated has occurred. It will also be appreciatedthat in some cases a “departure from the rules” merely indicates that aspecific type of trading activity or behavior has or may have occurred.

This present invention allows the user to detect predefined types ofactivity such as market timing, but it also allows the user to defineadditional patterns or types of activity or behavior that are ofinterest to and specific to the user.

The present invention provides means for isolating a trader and specificinvestment. The term “trader” embraces not only an individual trader whois the holder of an account, but also a wide variety of others to bemonitored in a similar manner in respect of trading activity such asbrokers, account representatives and account managers, for example. Theinvention includes generating a database of historical trading dataregarding the specific trader as well as obtaining current informationon a plurality of trading parameters which can be compared with thehistorical data. The trading parameters are preferably selected tocorrespond to the rules employed. Automated application of rules isemployed to determine if a departure from the rules, such as markettiming activity, has occurred with appropriate communications beingemitted when such departure from rules has been determined to exist.

A preferred form of the method of the invention is illustrated in theflow diagram of Figure I wherein a plurality of data packets representedby trading parameters I-n, bearing, respectively, reference numbers4,6,8,10 are all processed 20 to provide current trading informationregarding a specific trader. This information is not only delivered tothe historic data for combination therewith 24 at 26, but also issubjected to a comparison between the current information and thehistoric trading data 30. This information is then subjected toapplication of the rules 34 in order to determine if a departure fromthe rules or other behavior of potential interest exists. The rules 36which govern the method of evaluation or detection may be revised by theuser or others permitted to do so 38 and then are provided in theircurrent form for the comparison 34. The next block indicates the issueof whether a departure from the rules has occurred 44. If the answer is“no”, that is the end 48 of that cycle of the process. If the answer is“yes”, then an alarm report, which may be of any desired nature, contentand format, is delivered 50 and the existence of this departure isdelivered to the historic data for the specific trader 24. This cycle isrepeated 60 with a predetermined frequency as determined by the user.

While the preferred practice of the invention involves making acomparison of the current information with the historic trading data, insome instances one may avoid the comparison and employ solely thecurrent information or historic trading data in applying the rules.

It would be appreciated that using the method and apparatus of thepresent invention, the rules are compared with current information orhistorical trading data or both to ascertain if behavior of interest asdefined herein exists and, if so, analyzing whether a rules violation, adeparture from the rules which may not technically be a violation or apotential departure from the rules which would require or make desirablefurther analysis has occurred. In some instances, there would be noclear violation of the rules or departure from the rules, but a rulesevaluation indicating that it would be desirable to review theparticular pattern or circumstances in order to determine if furthermonitoring or other action would be desirable.

The rules 36 may be modified and corresponding changes made in thetrading parameters 4, 6, 8, 10 to facilitate efficient monitoring.

It will be appreciated that the historic trading data containsinformation regarding patterns of trading, times of trading, particularcritical days and relationship to trading as well as the foregoingsummarized information.

Some of the rules may relate to preferred practices of a user such as amutual fund, brokerage, broker, dealer, government agencies, or othersinvolved in the investment community, while others might relate todetermination of improper conduct such as market timing.

Referring to FIG. 2, there is shown apparatus employable with thepresent invention. Sources of trading data 70, 72, 74, 76, which arestructured to provide trading parameters with respect to a specifictrader and specific investment, deliver data to the interface 80 whichprocesses the current trading parameter data for the specific trader anddelivers it to the server 86. Server 86 also receives historic tradingdata from historic data unit 90 and the rules form rules unit 92. Theserver 86 compares the current trading parameter data with the historictrading data which is then evaluated in respect of the rules withinformation being emitted through interface 96 to update the historicdata unit 90 and to deliver information to the user as by terminals 100,102 as well as providing a storage unit 104. If desired, storage can bewithin the server 86.

Also, apart from the reports which may have any desired format andcontent and which are emitted from the server 86 through interface 96, auser may access the information in a conventional manner.

Various forms of reports may be employed and the information may beprovided in such a manner that multiple information units can beprovided on a single terminal screen. Also, if desired, hard copy may beobtained by a conventional printer.

The server 86 may be structured to conduct statistical, probabilistic,heuristic, pattern-matching analysis of data in order to detect eventsof interest in respect of the trading activity of the selected traderwith respect to one or more of his or her investments.

The system preferably has within the server 86 the capability ofdelivering results through at least one of the group consisting of html,xml, xbrl, spreadsheets and comma-separated files.

The invention may be structured to permit or prohibit an end user'sviewing in a report or other format underlying detail trades or theomnibus trade.

While a primary focus herein in respect of monitoring for “markettiming” has been on mutual fund transactions as this is currently amajor problem, the invention is equally applicable with respect tonumerous types of other “investments” as defined herein.

The method and system of the present invention can monitor sub accounts(detail accounts) and omnibus accounts including detection of markettiming with respect to each.

It will be appreciated, therefore, that the present invention provides amethod and associated apparatus for the efficient, rapid and accurateprocessing of current trading parameter or trading data in respect of aspecific trader and a specific investment, automated comparison of thesame with the corresponding historical trading data followed by anapplication of rules to the same to determine whether there has been adeparture from the rules and responsive action may be initiated if suchis found to exist.

Whereas particular embodiments of the invention have been disclosedherein for purposes of illustration, it will be evident to those skilledin the art that numerous variations of the details may be made withoutdeparting from the invention as defined in the appended claims.

1. A method of computerized monitoring of investment trading comprising providing historic trading data for a specific trader, selecting a plurality of trading parameters for said specific trader and obtaining current information regarding said selected parameters, and applying rules to said current information and/or historic trading data to determine if behavior of interest exists.
 2. The method of claim 1, including prior to applying said rules, comparing said current information with said historic trading data.
 3. The method of claim 1, including applying said rules employing both current information and said historic trader data.
 4. The method of claim 1, including employing said process on a specific investment of said trader.
 5. The method of claim 4, including employing said process on a said specific investment which is a mutual fund.
 6. The method of claim 4, including repeating said process periodically for a said specific trader and specific investment.
 7. The method of claim 6, including employing the trade date and time as said parameters.
 8. The method of claim 4, including effecting said comparison employing historic trading data specific to said specific investment and said specific trader.
 9. The method of claim 1, including employing said method to determine if market timing mutual fund transactions have occurred.
 10. The method of claim 1, including if a departure from the rules has occurred, delivering an alarm report.
 11. The method of claim 4, including employing said process to detect specific patterns of trading in mutual funds.
 12. The method of claim 11, including monitoring said specific patterns in respect of higher- or lower-than-expected volumes of trading in said mutual fund by said specific investor.
 13. The method of claim 1, including customizing said rules with respect to said specific investor.
 14. The method of claim 4, including customizing said rules with respect to said specific investment.
 15. The method of claim 10, including effecting said delivery by at least one method selected from the group consisting of html, xml, xbrl, spreadsheets and comma-separated variable files.
 16. The method of claim 1, including selectively assigning and tracking trades for an omnibus account differently than trades for the underlying sub account.
 17. The method of claim 1, including providing with said historical trading data sub account information.
 18. The method of claim 1, including providing with said historical trading data omnibus information.
 19. The method of claim 1, including coordinating selection of said trading parameters with the said rules employed.
 20. The method of claim 19, including modifying said rules to monitor for specific trading conduct. 